Livingstone. #800 NT

Australian Agriculture Company (AACo) is Australia’s largest beef producer owning in excess of 500,000 head. The building of the Livingstone beef processing facility near Darwin is the first new cattle abattoir to be built in Northern Australia for 50 years. It is the first operational beef export accredited facility operated in the NT for nearly 15 years. Currently mothballed after 3 years of operation.

Current Operation

Livingstone abattoir, Was announced to be mothballed in September 2018.125

Initially Stage One – 100,000 head capacity with development through modular construction

1,100 head a day, flexability to incorporate carcase chillers when required

double shift platform 7 months of year, single shift for another month and closed during wet15.

Work 11 months of year atleast 5 days a week

slaughter grids HSCW c/kg

inject $126M into economy6

Day care facilities7

Medical facilities to assist with Workers compensation costs7.

Darwin site chosen – just 50km from international seaport for exporting meat to key Asian markets. close to Major city to attract and retain workers and other support services for the proposed facility, with other benefits in AW , transport and carbon benefits12

Will be hot boning room (Stage 1 low cost production model), chillers and full capacity if fully developed to 225,000 head year.

Refrigeration system – one of the most technical and energy efficent installed.58

Built by one of the largest industrial refrigeration providers in Australia, Gordon Brothers Industries58

ACIL Tasman Report – found a main benefit the proposed AAco abattoir would be providing a market for excess cast for age female cattle and as a result would promote productivity improvement in breeding herds.8

AACo will consider sales and purchases to re-aling its footprint in North Australia53

Hoped Planning approval would occur by Christmas 201153

two sites being considered for the facility53

construction is expected to take 12 months, employ about 150-180 staff.53

Mr David Farley Managing director of AACo, says the facility is not an alternative to live export.53

‘If we had to get to that point we’d need $10 billion, a 10-year planning horizon, major investment in roads, rail, port and electricity – and 10 good men to oversee getting the job done, You’d need to process about a million cattle a year in northern Australia if you want to replace Live export” David Farley53

2012

Environmental assessment report conducted. “..there were significant uncertainties that had not been adequately dealt with…these relate primarily to the management of waste water and the need for effective management of odour, noise and dust“76

February. Plant estimated to cost $80M,

Plan to be in opertion at around October 201315

Potential price premiums of $30+ a head from overseas meat buyers wanting to source product from low-carbon production backgrounds15

February. Changes to water treatment process on site from an effluent dam storage treatment and irrigation system to a dissolved air flotation system13

Preparation of site and civil works well advanced, light wet has been good advantage. Construction phase to begin 11.02.13

March. 260 staff required – will use 457 visas16

Government threatened to impose further restrictions on 457’s, “ if you want to delay, disrupt or waste Australia’s future then the 457 actions of the Gillard government will do all of that” – David Farley. AACo CEO16

April. Completion of first stage of construction17

Speculation development may be abandoned40

AACo say waiting for equipment to arrive.40

AACo announce selling two QLD properties40

Northern Territory Treasurer – Country Liberal Government, “There is no money available to support the abattoir” David Tollner, Minister for Business41

May. Construction expected to recommence late May17

AACo now sourcing capital to finance the abattoir without private investors17

Estimates of build now $85M17

Uncertainty of government funding and private joint ventures led AACo to fund project independently17

June. Three months to June Financials for AACo.21

AACo cattle sales – Total Sold 99,654 cattle, Av $676/hd21

Grass fed/finished 28,275 hd21

Breeder and Feeder Cattle 37,456 hd21

Live export 20,14621

Wagyu 8970 hd21

Previous year same period – Total sold 68,660 cattle, Av $967/hd21

AAco wholesale beef business21

2140t Wagyu21

Previous year same period 2,487t Wagyu21

Short fed – grain finish 1,699t21

Previous year same period 1,965t21

August. AAco CEO David Farley is dismissed18

Farley had served AAco for 3 years and 8 months20

“..investing in a Darwin abattoir was important strategy to break reliance on large-scale processing competition in Australia, while also protecting the value of AAco’s northern beef properties” Nick Burton Director & Chairman of AAco, commenting on how Farley had helped to reposition AAco through difficult periods.18

Concerns are raised that abattoir won’t be built without Farley but at AGM Chairman Donald McGauchie the board has given full approval for the project.28

AAco recently sold Brighton property $11.5M18

part of strategy to focus capital in North Australia18

Finance of the abattoir had caused friction in last 2 years18

AAco may need to raise $150M in fresh equity to get its debts in order19

currently hold 1% of Australia’s landmass19

600,000 cattle across 7.2M hectares.26

Australia’s biggest beef producer26

has Gross debt $423M at March 31.2013.19

recently sold properties worth combined – $25M19

AAco’s current debt to equity is 70%19

Ideally would be 30%19

Current major stakeholders – Wellington Management cut its holding from 8.1% to 6.5%19

Taylor is an associate of New Zealand Centre for Human-animal studies -“whose research is concerned with the conceptual and material treatment of nonhuman animals in culture, society and history”.34

She is also a committee member of ‘Minding Animals Australia’ – Minding Animals International state their main objective as “… to further the development of nonhuman animal studies internationally and to help establish legal and moral protections for nonhuman animals”33

Authors Note – At time of writing Karnet abattoir (WA) is a low security prison operated abattoir located in Western Australia

Jason Strong is appointed managing director and chief executive officer, was previously the companies general manager44

February. Organic farmers in the NT express and interest in buying meat meal from the plant45

Construction well under way with expectation of being operation by second half of 201446

Plant now estimated to have cost $90M47

“We strongly believe that in conjunction with the live export trade this facility will help to improve the overall performance of the Northern Territory beef industry” Mr Donald McGauchie, AAco Chairman47

Plant now cost more than $90M, expected to begin operations in September 201450

Processing will start at 300 head a day before steadily increasing50

Refrigertion and rendering equipment is now arriving and being installed.51

Expected savings of transport of stock from Katherine or the Victoria river area to a QLD plant will be $160 per head or $20,000 a trip48

Some within Australia’s established processing industry rate the plant’s chance of long-term success at zero63

Plant will contribute more than $120M to the local economy63

AACo 2014 report – The Northern Beef Processing Facility will be complementary to AACo’s live export trade, not a competitor, providing a market channel for cattle not destined for live export. (Pg 11)69

AACo, current Australian herd (including animals in feedlots and calves) 552,065 at 31/03/2014 (Pg 95)69

At different times the north had 10-12 abattoirs, that processing capacity has vanished. Abattoirs in the NT

More than 90 abattoirs were lost from Australian agricultural landscape between 1980-200566

Killing started immediately – 40 head a day, have been able to do that while commissioning.62

Product will accumulate in cold storage before the first sale is delivered in several weeks.64

First customer will be un-named domestic manufacturing beef customer on the eastern sea board64

AACo are not concerned about rising prices of live export cattle62

“We are quiet aware of that (rising LE prices) and we’ve got to remember that a strong, viable live export industry is good for the plant” Jason Strong. AACo Managing director.62

Australia’s national cattle herd is set to decline to its lowest level in 20 years

Forecasts of July 1 2015 Herd will drop to 26.1M65

Plant will face difficulties to get established65

cattle supply shortage65

find competant workers65

establishment of product in a highly competitive wholesale beef marketplace65

Maybe AACo plant will survive, others to the south of Australia may not.65

November. Financial year earnings released. Pre tax earnings for first half of year negative $8.2M mainly due to cattle sales revenue reducing by $50.4M as company held stock to be processed at the abattoir.68

Since original business case developed has been significant improvement in manufacturing beef prices68

underpinned by US beef producers rebuilding herds.68

First customer was an un-named domestic manufacturing customer on the Eastern seaboard70

Recent transition from retaining brand ownership through the supply chain to instead selling cattle is in stark contrast to what previous management teams claimed had pulled AACo out of negative cash flow in the first place.117

Key Pillar in AACo’s vertical integration had been the opening of the Livingstone abattoir.119

Increased competitive dynamics had occurred in some of the beef product portfolio’s.119

Larger exports out of the US and the strength of the Australian dollar119

Net debt at years end $348M119

Gearing ratio (Net debt/total equity +net debt) 26%119

AACo’s stated target net debt 20-35%119

Debt refinancing had been completed in September 2017125

May. New Chief Operating officer (Pastoral) – Anna Speer.122

Currently CEO of online livestock trading company – Auction Plus.122

Formerly worked for Australian Consolidated Pastoral122

Ms Speer will be responsible for122

16 outback cattle stations in QLD and NT

2 feedlots

Livingstone abattoir

500 regional employees and

more than 500,000 cattle.

May 23. AACo announces it will suspend operations of its Livingstone abattoir.123

Facility has commitments through to August.123

Likely operation will suspended September 30, 2018.123

Possibly earlier stoppage may occur.123

Facility has been in operation for 3 years and currently employs 200 people123

Blend of local workers and overseas 457 visa holders128

Workers will be offered redundancies128

Total one-off write down of $74.9M includes123

$69.5M in respect to buildings, improvements, plant and equipment

$5.4M onerous contract

Local pastoralists are concerned old bulls and old cows located on properties now have no where to go123

“They couldn’t meet the market with the prices they were giving for cattle which is why a lot of people weren’t actually going there” Amanda Murphy, Pastoralist, Kalala Station123

AACo said its earnings were impacted by a number of factors.123

increased competition affecting certain parts of product portfolio123

reduced volume due to less reliance on external supply123

increased input costs due to dry conditions.123

High labour costs126

Labour competition with local gas and mining projects128

Labour costs were unviable128

Inputs were just too dear to make a viable profit at the plant130

Staging of cattle to maintain supply through the wet season created an additional cost burden130

Potential buyers are welcome to talk to AACo about the future of the Livingstone abattoir.126

Could be options with other partners126

Facility had relied on non-AACo herds to provide about 80% of its throughput126

AACo’s own cattle processed through Livingstone are transferred at observable market rates130

Livingstone cattle price problems were due to herd reduction that has occurred across large parts of Australia130

Supply chain inputs were far higher than would be expected in southern beef processing environments – including labour contracts at the abattoir126

Meat from the Livingstone plant averaged just $4/kg126

Sold domestically and to China, Korea, Indonesia and Japan126

Livingstone generated one fifth AACo’s revenue in 17/18126

Livingstone abattoir has failed to turn a profit since opening in late 2014127

push by AACo’s largest shareholder to become a luxury beef producer127

AACo denied hanging onto the abattoir as a hedge or calculated bet that the $1.2B northern Australia live cattle export trade might be banned in the near future because of animal welfare or activist campaigns127

Hugh Killen denied that live cattle export was responsible for the failure of the Livingstone Beef plant127

Facility will be mothballed with a working crew retained of 12 people129

Licences and standards will be maintained to allow re-start in a short time if required129

Abattoir will cost $400,000 per annum to simply maintain in a mothball state129

Observers say contributing factors to Livingstone predicament are more than just livestock procurement and labour130

Some point to AACo’s multi layered and generously rewarded management profile130

Poor operational set-up and strategy at the plant130

AACo handed over domestic marketing to Australian Wholesale Meats which took $2-3/kg off the margin of sales130

Some other processors mystified as to why the plant wasn’t setup as a least cost hot boning plant suited to efficient generation of frozen lean grinding beef130

QLD processor Australian Country Choice (ACC) visited the site to offer guidance on set up and operational strategies.130

No suggestion ACC has any direct interest in investment or management130